$3.5 Million Awarded to Whistleblower Who Was Initially Rebuffed by SEC

Posted on May 28, 2016, by Jennifer B. Dempsey in Whistleblower. Comments Off on $3.5 Million Awarded to Whistleblower Who Was Initially Rebuffed by SEC

The SEC recently announced a $3.5 million whistleblower award that reversed course from its earlier determination that the whistleblower was not entitled to an award. Press Rel. No. 2016-88 (May 13, 2016). During its preliminary review, the Claims Review Staff determined that the whistleblower had not provided information to the SEC that lead to the success of the Covered Action because the information did not cause the Enforcement Staff to open an investigation, cause the Enforcement Staff to inquire into conduct that was different from what the Enforcement Staff was already investigating, or significantly contribute to the Covered Action. The whistleblower subsequently filed a written response that contested this decision and that provided additional factual information relevant to the investigation.

The SEC reviewed this response and determined that the whistleblower had provided information that “significantly contributed” to the success of the action and therefore satisfied the requirements for the award program, as set forth in Rule 21F-4(c)(2). The order took note that the SEC placed “considerable weight on the additional record evidence that was provided” and that caused the Enforcement staff “to focus on” a particular subject matter “when staff might otherwise not have done so.” As a result of the additional information, “this evidentiary development strengthened the Commission’s case by meaningfully increasing the Enforcement staff’s leverage during the settlement negotiations.” The Commission also took note of the whistleblower’s hardship in providing the information, particularly the fact that the whistleblower could not obtain employment in the wake of reporting the misconduct.

The SEC’s reconsideration of the whistleblower award in this case demonstrates that the Commission will issue awards, not only when the whistleblower prompts an investigation, but also when he or she “significantly contributes” to the success of an ongoing investigation.

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